Hyderabad ITAT on Section 249(4)(b): Appeal Dismissal for Non-Payment of Advance Tax Held Unsustainable Without Proper Examination

Background and Context

The Hyderabad Bench of the Income Tax Appellate Tribunal (ITAT), in the case of Vedala Krishnamurthy Sreevani Vs ITO, examined an important procedural issue: whether an appeal before the CIT(A) can be treated as non-maintainable merely because the assessee has not paid an amount equal to the advance tax allegedly payable in a situation where no return of income was filed.

The appeals related to AY 2018-19 and arose from reassessment and penalty orders passed under:

  • Section 147 r.w.s 144 r.w.s 144B (reassessment framed ex parte through faceless scheme),
  • Section 270A (penalty for under-reporting/misreporting of income), and
  • Section 271B (penalty for failure to get accounts audited).

All three appeals were clubbed and disposed of by the Tribunal through a consolidated order dated 21.08.2026, as they involved a common legal issue under Section 249(4)(b) of the Income Tax Act 1961.

Facts of the Case

Reopening of Assessment and Additions

The Assessing Officer (AO) received information indicating sizeable financial transactions in the assessee’s bank accounts for the relevant year. Based on this, the AO initiated proceedings under Section 147.

The information included:

  • Cash deposits in a Union Bank of India account: ₹2,46,04,600
  • Cash withdrawals from the same bank: ₹2,40,000
  • Cash deposits in an Oriental Bank of Commerce account: ₹2,46,04,600
  • Interest income (other than on securities) from Oriental Bank of Commerce: ₹69,277

A notice under Section 148 dated 02/04/2022 was issued. The assessee did not file a return of income in response.

Subsequently, the AO completed reassessment under Section 147 r.w.s 144 r.w.s 144B on 26/02/2024 and:

  • Treated total bank transactions of ₹2,64,97,400 as undisclosed turnover/receipts,
  • Estimated income at 12% of such turnover, resulting in an addition of ₹31,79,688,
  • Added ₹69,277 as undisclosed interest income, and
  • Determined total income at ₹32,48,965.

Appeal Before CIT(A) and Its Dismissal

The assessee challenged the reassessment before the CIT(A), National Faceless Appeal Centre, Delhi. However, the first appellate authority did not go into the merits of the additions.

Instead, the CIT(A) dismissed the appeal as infructuous/non-maintainable, holding that:

  • The assessee had not filed a return of income for the year, and
  • The assessee had not paid an amount equal to the advance tax that was allegedly payable, as required under Section 249(4)(b).

The appeal was thus rejected at the threshold, without adjudicating any of the substantive grounds relating to the nature of deposits, estimation of income, or interest addition.

The assessee also filed appeals against penalty orders under Section 270A and Section 271B. Those penalty appeals were similarly dismissed by the CIT(A) on the same ground of non-compliance with Section 249(4)(b).

Assessee’s Grounds Before ITAT

In the quantum appeal, the assessee raised multiple grounds before the Tribunal, broadly contending that:

  1. Improper reading of Form 35: The CIT(A) allegedly misinterpreted the information in Sl. No. 9 of Form 35 (question relating to payment of amount equal to advance tax under Section 249(4)(b)), where the assessee had clearly mentioned that the requirement was “Not applicable”.

  2. Non-applicability of Section 249(4)(b): Dismissal of the appeal solely for non-payment under Section 249(4)(b) was challenged on the basis that:

    • No return of income had been filed;
    • There was no “admitted income”;
    • The entire assessed income was fully disputed; and
    • According to the assessee, there was in fact a loss and the relevant business activity (agency business) had already been discontinued.

    On these facts, the assessee argued that no advance-tax liability arose, and hence Section 249(4)(b) did not come into play.

  3. Violation of natural justice: It was contended that the CIT(A) acted contrary to the principles of natural justice by dismissing the appeal without granting a meaningful hearing and without dealing with the substantive grounds on merits.

  4. Unreasonableness of 12% estimation: The assessee also challenged the AO’s approach of treating the entire cash deposits as turnover and estimating income at 12% thereof as arbitrary and unsupported by statutory provisions, comparable cases, or the assessee’s past history.

Arguments Before the Tribunal